TaxTMI 
TaxTMI 
2022 (5) TMI 800
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....LICATION (FOR STAY) NO. 1 of 2022 In R/TAX APPEAL NO. 110 of 2022 With R/TAX APPEAL NO. 111 of 2022 With CIVIL APPLICATION (FOR STAY) NO. 1 of 2022 In R/TAX APPEAL NO. 111 of 2022 With R/TAX APPEAL NO. 112 of 2022 With CIVIL APPLICATION (FOR STAY) NO. 1 of 2022 In R/TAX APPEAL NO. 112 of 2022 With R/TAX APPEAL NO. 113 of 2022 With CIVIL APPLICATION (FOR STAY) NO. 1 of 2022 In R/TAX APPEAL NO. 113 of 2022 With R/TAX APPEAL NO. 114 of 2022 With CIVIL APPLICATION (FOR STAY) NO. 1 of 2022 In R/TAX APPEAL NO. 114 of 2022 Appearance: Priyank P. Lodha (7852) for the Appellant(s) No. 1 Mr. Anand Nainawati (5970) for the Opponent(s) No. 1 COMMON ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. Since the substantial questions of law formulated by this Court while admitting all the captioned tax appeals are the same, those were taken up for hearing analogously and are being disposed of by this common judgment and order. 2. For the sake of convenience, the Tax Appeal No.102 of 2022 is treated as the lead matter. 3. This tax appeal under Section-83 of the Finance Act, 1994 read with Section-35G of the Central Excise Act, 1944 is at the instance of the revenu....
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....per the Finance Act, 1994? 6. The facts giving rise to this appeal may be summarized as under:- 6.1 The respondent formed a Partnership Firm named and styled as M/s. Zydus Healthcare. 6.2 The three partners were the respondents Cadila Healthcare Ltd., Cadila Healthcare Staff Welfare Trust and M/s. German Remedies Ltd. respectively. 6.3 The respondents' share in the profit of the partnership firm is 96% and the balance with respect to the two other partners have 2% of share. 6.4 The said partnership deed dated 01.03.2007 was amended vide the addendum dated 01.04.2007 to the Partnership Deed. 6.5 Since the above clause is important, it is extracted as below:- (4) With the object of enabling the firm to market and distribute its products more efficiently, to enable the firm to expand its market share and improve over all sales and earnings (so as to earn higher profits for the firm and thereby enjoy a higher share in the profits of the firm as its partner) the party of the First Part as partner of the firm, has agreed to discharge the following functions as an active partner for and on behalf of the Firm: A. providing services relating to Promotion ....
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....ydus Healthcare. 6.11 Subsequently, on 15.04.2011, the Respondent filed a refund claim of Rs.3,96,55,000/- under the provisions of Section-11B of the Central Excise Act, 1944 for the period between 01.10.2010 and 31.12.2010 as made applicable to service tax vide Section-83 of the Finance Act, 1994. The claim was within the period of limitation provided in the statute. 6.12 The Assistant Commissioner of Service Tax, Ahmedabad vide his Order in Original No. STC/Ref/101/Nimba Ram-AC/Div-III/ 1112, dated 01.12.2011 rejected the refund claim. The Assistant Commissioner relied on the definition of the term "person" as defined under Section-3(42) of the General Clauses Act, 1897 to hold that as per the definition of "person" the partner and the partnership firm are different and distinct persons and therefore, considering the nature of services performed by the respondents, the service tax was correctly paid by the respondent at relevant time. The Assistant Commissioner also held that the respondent has earned the remuneration for performance of the services as mentioned in the partnership deed, which is nothing but consideration for the services and therefore, the service tax was r....
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....n received for the services rendered it to the Partnership Firm, which evidences that there has to be an invoice raised in respect of the same. If this consideration was to be considered as share in profit, then there is no requirement of raising an invoice for the same and the payment of service tax consequent thereto. Further, the consideration received by the Partner i.e. the respondent herein from the Partnership Firm is treated under the head of 'Partner's remuneration from a Partnership Firm' and not under the 'share of profit from a Partnership Firm' in the Profit and loss account of the Respondent Partner for the Financial Year 2009-10. From such treatment of consideration in the accounts of the Respondent, it is clear that such consideration shall be considered as income in the hands of the respondent and thus the respondent shall be liable to pay income tax on the same, however, had this been share in the profit of the Partnership Firm, then the said amount would have been subject to income tax on the hands of the Partnership Firm and not the Partner. The said fact is recorded by the Authority while passing the order in original. Thus, it is submitted that the considerati....
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....rried on by all or any of them acting for all. Further, the persons who have entered into the partnership are individually called 'partners' and collectively a 'firm'. 13.2 Therefore, the partners and the firm are one and the same. 14. Definition of 'person' in section 3(42) of the General Clause Act. - The same is inapplicable to partner/partnership firm 14.1 Section-3(42) of General Clause Act, 1897 reads as under: (42) "person" shall include any company or association or body of individuals, whether incorporated or not; 14.2 It is now well settled that the above definition is inapplicable in the context of Partnership Act, 1932. The decisions of the Supreme Court as below will make the position of law very clear. 15. The Law laid down by the Supreme Court in the case of Dulichand Laxminarayan v Commissioner of Income Tax [1956] 29 ITR 53 is that a Firm is not a person. Definition in the General Clauses Act of Person inapplicable to the Partnership Act. 15.1 In that case, the partnership firm was constituted by three small partnership firms, one Hindu Undivided Family (HUF) and one individual i.e. total of 5 firm partners. 15.2 The partnership firm c....
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....llective name of those individuals who constitute the firm. In other words, a firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership. According to the principles of English jurisprudence, which we have adopted, for the purposes of determining legal rights "there is no such thing as a firm known to the law" as was said by James, L. J., in Exparte Corbett: In re Shand. In these circumstances to import the definition of the word "person" occurring in section 3(42) of the General Clauses Act, 1897, into section 4 of the Indian Partnership Act will, according to lawyers, English or Indian, be totally repugnant to the subject of partnership law as they know and understand it to be. It is in this view of the matter that it has been consistently held in this country that a firm as such is not entitled to enter into partnership with another firm or individuals. (Emphasis supplied) 15.6 The Supreme Court in case of Dulichand Laxminarayan (supra) specifically noted the decision of the Privy Council in case of Bhagwanji Morarji Goculdas Vs. Alembic Chemical Works Co. Ltd. and reiterated that the Indian law ha....
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....bellish this brief judgment with some text-book references and citation of rulings. Is the firm a person or a mere shorthand name for a collection of persons, commercially convenient but not legally recognised? Under section 3 of the Partnership Act it is not a person, but a relationship among persons. Lindley on Partnership, 12th edition, page 28, has this: "The firm is not recognised by English lawyers as distinct from the members composing it. In taking partnership accounts and in administering partnership assets, courts have to some extent adopted the mercantile view, and actions may now, speaking generally, be brought by or against partners in the name of their firm; but, speaking generally, the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. In point of law, a partner may be the debtor or the creditor of his co-partners, but he cannot be either debtor or creditor of the firm of which he is him....
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....n. 17.3 It is on this basis that the Larger Bench of CESTAT in Gopal Industries case accepted the directly opposite contention of Revenue that the decision in Jullunder Vegetable is inapplicable to Central Excise Act, 1944. 18. The Larger Bench of the Tribunal in Gopal Industries Ltd. (Supra) distinguished Jullunder Vegetable Syndicate (Supra) as inapplicable to Central Excise Act, 1944. 18.1 It was noted by the Larger Bench that there is no provision in the Central Excise Act, 1944 and the Rules made thereunder, treating a partnership firm as a separate legal entity as opposed to the Income Tax and the Sales Tax law. Thus, the Revenue's contention to the effect that a partnership firm is not a person under the Central Excise Act, 1944 was accepted by the Larger Bench of the CESTAT. It was therefore, held by the Larger bench, distinguishing Jullunder Vegetable (supra) that the assessment of a partnership firm under the excise law is an assessment of persons constituting the firm and hence valid even after dissolution. 18.2 The relevant portion of the judgment is extracted as under: 11. There is no dispute about the fact that there is no reference express or imp....
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....n as a body of individuals, there is no automatic birth of a juristic person unless specifically so recognized by law. (Emphasis supplied) 18.3 In the Finance Act, 1994 prior to 01.07.2012, there was no provision treating a firm as a 'person'. Hence, the reliance placed by the Revenue on the case of Jullunder Vegetables Syndicate (supra) is misplaced. 19. Section 65(105)(zzb) i.e. business auxiliary service applies for a service provided to a client by any person.- Hence, two distinct persons are required to attract Section 65(105)(zzb) of Finance Act, 1994. 19.1 The partnership firm, M/s Zydus Healthcare cannot be considered as a 'person' distinct from the Respondent - partner. Therefore, there cannot be a service provider - service recipient relationship between a partner and the partnership firm when a partner discharges his duties as a partner pursuant to deed of partnership. Hence no service tax is payable on the activities performed by the respondent in the capacity of partner to the firm. 19.2 Section-65(105)(zzb) applies to service provided to a client by a person in relation to business auxiliary service. Hence, two distinct persons are required to attract t....
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....oner of Income Tax v R. M. Chidambaram Pillai [1977] 106 ITR 292 (SC). 20.3 The above paragraph can be explained by way of two examples as under. Example 1 Let us say in a partnership firm, there are two partners Mr. A & Mr. B respectively. The profit sharing ratio between them is 3:1. If the partnership firm makes a profit of Rs.400/- then in that case Mr. A would receive Rs.300/- and Mr. B would receive Rs.100/-. In this case irrespective of the ratio of capital contribution by both the partners, the profit sharing ratio is 3:1. Example 2 Taking the same example as above, with the addition that Mr. B is entitled to salary of Rs.100/- for his skill and labour put for the partnership firm. If the partnership firm makes the profit of Rs.400/- then Mr. B would receive the salary of Rs.100/- first. Thereafter, Rs.300/- would be distributed in profit sharing ratio of 3:1. In that case Mr. A would receive Rs.225/- as his share in general profit and Mr. B would receive Rs.75/- as his share in the general profit. Further, Rs.100/- to Mr. B as salary also would be considered as a special/additional share in the profit of the firm. Share in profit by h....
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.... Incometax Vs. R.M. Chindambaram Pillai [1977] 106 ITR 292 (SC) reiterated the very same principle as above. 22.1 In that case, the issue under consideration was the nature of salaries paid to the partners of a partnership firm. The Firm earned agricultural income which was exempted from income tax. Partners were paid salaries. A Question arose whether said amount received by the partner is also an agricultural income. It was held by the Supreme court that the salary paid to a partner is a mode of division of the firm's profits. The relevant portion of the judgment is extracted below: The necessary inference from the premise that a partnership is only a collective of separate persons and not a legal person in itself lends to the further conclusion that the salary stipulated to be paid to a partner from the firm is in reality a mode of division of the firm's profits, no person being his own servant in law since a contract of service postulates two different persons. ............... Contrary views are not wanting in some rulings, but a catalogue of cases on the other side may be productive of confusion and not resolution of conflict. We abstain from ....